Traditional IRAs

Traditional individual retirement accounts (IRAs) allow you to set aside money pre-tax that can grow in your account tax-free until the money is withdrawn, when it will be subject to your normal tax rate.

For 2016, the maximum you can contribute to all of your Traditional and Roth IRAs is the smaller of:

  • $5,500 ($6,500 if you're age 50 or older) or
  • your taxable compensation for the year.

Contributions may also be tax-deductible, subject to the limits outlined below.

Deductions for contributions are based on a couple of factors. Your deduction may be allowed in full if you (and your spouse if you are married) are not covered by a retirement plan at work, either because your employer doesn't offer one or you're ineligible to participate. Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your modified adjusted gross income (MAGI) exceeds certain levels.

If you're covered by a retirement plan at work, your deduction is phased out if your MAGI reaches a certain level:

  • More than $98,000 but less than $118,000 for a married couple filing jointly or a qualifying widow(er)
  • More than $61,000 but less than $71,000 for a single individual or head of household
  • Less than $10,000 for a married individual filing a separate return

If your spouse is covered by a retirement plan, but you are not, your deduction is phased out based on the following MAGI:

  • More than $184,000 but less than $194,000

The amount you can deduct adjusts on a sliding scale:

  • For single individuals and heads of household, your deduction is reduced by $500 for every $1,000 earned over the income limit
  • For couples filing jointly, your deduction is reduced by $250 for every $1,000 earned over the income limit
  • For couples and singles, the total of your reduced deductions can be invested in a non-deductible IRA

This material is for informational purposes only and Scottrade is not responsible for any errors or omissions. The information is subject to change without notice and should not be construed as a recommendation or investment advice. Please consult your tax or legal advisor(s) for questions concerning your personal tax or financial situation.